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Focus on Fundamentals: Gold Demand Up 7% in the First Quarter

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Gold demand was up 7% year-on-year in the first quarter, according to the World Gold Council Gold Demand Trends Q1 2019 report.

Total global demand came in at 1,053.3 tons, driven primarily by central bank buying, inflows of metal into ETFs and strong demand for gold jewelry.

This compares with a relatively weak first quarter last year when demand sank to a 3-year low.

Central banks added 145.5 tons of gold to their reserves in Q1. It was the strongest first quarter since 2013 and exceeded the five-year quarterly average of 129.2 tons.

Economic uncertainty caused by trade tensions, sluggish growth and a low/negative interest rate environment continued to weigh heavy on reserve managers’ minds. And geopolitics still cause consternation. In the face of these challenges, central banks continued to accumulate gold.”

Russia and China led the way, as those countries continue efforts to minimize their exposure to the US dollar, but they weren’t alone. Ecuador bought gold for the first time since 2014, boosting gold holdings by 10.6 tons. Turkey also continued to accumulate gold, purchasing 40.1 tons. India added 8.4 tons. The Reserve Bank of India began purchasing gold again in 2018 after a nine-year hiatus. Qatar and Columbia also bought gold in the quarter.

Gold-backed ETFs added 40.3 tons of the yellow metal in Q1. Funds and North America and Europe saw healthy inflows (26.4 tons and 20 tons respectively) while Asian-based funds experienced modest outflows of 6.1 tons.

Gold bar and coin demand dropped by 1.4% in the first quarter year-on-year, pushed lower by a drop in demand for gold bars.

This was primarily due to soft investor demand in China as that country’s stock market surged. The Shanghai Shenzhen CSI 300 was up 30% in Q1. Meanwhile,  Japan saw net disinvestment of 6.2 tons as Japanese investors took profits from a 14% rally in the local gold price of gold between August 2018 and February 2019.

While demand for gold bars was down 5% year-on-year, the gold coin market had its best start since 2014, rising 12% y-o-y to reach 56.1 tons. Iran, Turkey, South Africa, the UK and the US accounted for most of this growth.

India helped drive the demand for gold jewelry higher. Total demand was up 530.3 tons. Indian demand accounted for 125.4 tons of this global demand. It was the highest level of gold jewelry demand in India since 2015.

Demand for gold jewelry was also up in the US, increasing for the ninth consecutive quarter. It was up 1% to 24 tons, ranking as the highest Q1 total since 2009.

Gold demand in the technology sector was the only real downer in the report. The use of gold in applications such as electronics, wireless and LED lighting fell 3% to 79.3 tons.

Trade frictions, sluggish sales of consumer electronics and global economic headwinds hit the technology sector.”

Supply was virtually unchanged. Mine production grew fractionally to 852.4 tons.

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